Graham continues to believe Zillow is attacking a large, nascent market with alacrity. Zillow hopes to bring ~1 million rental listings onto the platform by year-end, which would be ~1,000 additions per day for the rest of the year. Once this milestone is reached, management believes it can pursue monetization through several mechanisms.

Graham believes there is a “micro-TAM” of rental property manager marketing spend available for an online platform like Zillow’s that is greater than $500 million annually. In other updates, Graham believes Zillow’s broker relationships remain strong, an expanding real estate market is good for business, and the recently announced Google Now partnership could contribute meaningfully to visitor growth. Zillow operates a leading
network of real-estate sites with a clear mission to provide vital services to most of the real estate supply chain, including homeowners, buyers, sellers, renters, real estate agents, mortgage professionals, landlords, and property managers.

August 10
• Strong Q2 results; guidance likely conservative; maintaining BUY recommendation, raising target to $45 (from $42)Summary
Zillow reported another strong quarter highlighted by outsized growth in PA subs, a mostly optical sequential decline in ARPU, and further evolution from marketing channel to solutions platform for real estate professionals.Key Points
• “Third slot” monetization and Premier Silver Agents (who signed up for the free website feature) brought in ~4k new PA subs, mostly late in the quarter, compared with our estimate of ~1.8k. Generally, we now model more subs at a lower ARPU, but our revenue estimates go up.
• Leverage remains robust, with nearly all incremental revenue falling to the bottom line. Expenses stay high this year but we see potential for
considerable leverage next year.
• As it buys and builds technology and incorporates it into a growing platform, Zillow is rapidly adding new services (Web sites, Z-Pro) and verticals (Mortgages, Rentals) that are raising the competitive stakes in this fast growing sector.
• We raise our EPS estimates for 2012, 2013, and 2014 $0.35, $0.78, and $1.42.Valuation
Our new price target of $45 (up from $42) reflects 40x our new 2014 EPS estimate of $1.42 (up from $1.32), discounted to present at a rate of 12.1%.